Thought leadership for banking and financial services professionals

Why a cashless society won’t happen and payments choice is the future

Posted on April 21st, 2017

The concept of a cashless society is something that commentators, prognosticators and analysts have been discussing for a number of years. But over the past year or so, the idea seems to have gained traction. This is partly thanks to the growth of technologies like digital wallets and contactless cards, which make electronic payments just as quick and easy as handing over notes and coins.

We’ve heard talk about the possibility of countries like Australia and India becoming less reliant on cash. But amidst all the excitement about new technologies and innovative payment methods, it’s important to remember that falling use of cash is a very different thing to the disappearance of cash altogether.

What we can certainly expect to see is an increasingly diverse payments ecosystem, where cash continues to be used alongside digital wallets, contactless and other emerging technologies. But as for the complete removal of cash from the financial system, there are some very convincing arguments why that is an unwelcome – and also very unlikely – prospect.

Customers will always demand choice

At a time when consumers have more choice than ever in terms of how they pay for things, the idea of one of the oldest payment methods of all becoming obsolete is extremely unlikely and illogical. It runs counter to one of the most important principles in our modern, omnichannel financial services industry: that consumers should have maximum freedom and choice to manage their money in the way that best suits their needs.

Mobile wallets and cards may be the payment methods of choice for some, but there are millions of others who continue to rely on cash. In the UK – a mature market where cards and contactless are accounting for a growing share of payments – cash remains the most frequently used payment method, according to Payments UK.

Ron Delnevo, executive director for Europe at the ATM Industry Association, told Banking.com that payment choice should be the key focus, rather than attention-grabbing headlines and slogans about the death of cash.

“The public and businesses [should] decide what payment method suits them in particular circumstances,” he said. “I think it’s great that there’s innovation – I’ve got Apple Pay on my phone, I use cards, I use internet banking, but I also still use cash. And that’s the way most people are. This isn’t swapping one payment method for another, it’s actually being given more choice.”

Mr Delnevo went on to note that payments can be likened to transportation. The human race has evolved to the point where people have the choice to travel by air, land or sea, but no major transportation method has ever disappeared entirely.

The ATM and cash withdrawals

There are currently over 3.1 million ATMs in operation around the world, with this set to surpass 4 million by 2021. Also, the ATM still sees US$14.1 trillion withdrawn each year in cash globally via 92 billion individual transactions, according to Retail Banking Research: Global ATM Market and Forecasts to 2020. That equates to almost US$450,000 every second. The US$14 trillion withdrawn from ATMs around the world every year is equivalent to 18 percent of global GDP. Due to the sheer scale of this, it’s hard to comprehend that cash is going away anytime soon.

Fairness and inclusion

It’s important to view the cashless debate from the perspective of the basic rights and freedoms that members of society should have in all countries – from emerging economies to the richest, most powerful nations in the world.

A recent article in the Guardian highlighted concerns around what the prospect of a cashless society could mean in terms of financial inclusion and fairness. If all payments are part of an integrated electronic system, what becomes of those individuals or businesses that don’t have access to that system?

Financial writer Dominic Frisby said: “If you begin to insist on cashlessness, it does put pressure on you to be banked and signed up to [a] financial system, and many of the poorest are likely to remain outside of that system. So there is this real danger of exclusion.”

Mr Delnevo held a similar opinion, stating: “Cash is a very important payment method, but it’s also an important safeguard [for] liberty, independent, choice and freedoms that we shouldn’t forget.”

Impracticality

Cash is such a fundamental part of the global financial system that any conversation about the possibility of moving to a cashless society must take into account the practical implications that come with it.

We now live in an interconnected, interdependent global society where no single market can be viewed in isolation. Cash may have experienced a significant decline in countries like Sweden, but is it really a practical possibility that any nation could do away with physical currency without experiencing major disruption in terms of international trade and tourism?

Despite all the talk and debate taking place at the moment, a cashless society isn’t even close to becoming a reality, and there are some very strong reasons why we should hope this is the case for many decades to come.

As Adrian Buckle, chief economist at Payments UK, told Banking.com: “We are a long way from a cashless society. Indeed, cash is favoured in certain circumstances and by certain groups of customers. It is relied upon by those who have to manage limited budgets or irregular incomes, is universally accepted and does not rely on technology at the point of sale.

“For these reasons, cash is likely to remain in our wallets for many years to come, even if we use it less frequently than we do at present.”

Image: iStock/-goldy-

Written by Colin Gordon

Colin Gordon is a SelfServ Marketing Manager and is based at NCR's R&D Center in Dundee, Scotland. Colin is responsible for the marketing of NCR's financial hardware portfolio with a specific focus on Cash Dispense ATMs & financial trends.